Friday's S&P 500 bounce to continue, but selling may resume

S&P 500 index gained 1.5% on Thursday, as it retraced some of its recent sell-off, following Wednesday's downward reversal. The broad stock market traded the lowest since early October, before bouncing off from around 2,530. Is this two-week-long sell-off the beginning of a new medium-term downtrend or just downward correction? It's hard to say, but this move down set the negative tone for weeks or months to come.

The U.S. stock market indexes gained 1.4-1.5% on Friday following bouncing off new short-term lows, as investors' sentiment improved in the second half of the trading session. The S&P 500 index fell the lowest since the early October. It traded 11.8% below its January 26 record high of 2,872.87 (-340.2 points). Both Dow Jones Industrial Average and the technology Nasdaq Composite gained 1.4% on Friday.

The nearest important level of resistance of the S&P 500 index is at around 2,540-2,560, marked by Friday's daily high, among others. The next resistance level is at 2,680-2,700, marked by last week's Wednesday-Thursday fluctuations. On the other hand, support level is at 2,580-2,600, marked by some recent local lows. The next level of support remains at 2,530-2,550, marked by Friday's daily low.

The index reached its record high two weeks ago on Friday, January 26. It broke below month-long upward trend line on Tuesday, January 30 following gap-down opening of the trading session, confirming uptrend's reversal. Then the market retraced all of its January rally and continued lower. The index extended its downtrend on Friday, as it fell almost 12% below its late January record high. We can see that stocks are sharply reversing their medium-term upward course following the whole retracement of last month's euphoria rally. However, the market bounced off its medium-term upward trend line on Friday, as the daily chart shows:

Positive Expectations Following Friday's Bounce

The index futures contracts are gaining 1.1% vs. their Friday's closing prices this morning. So, investors' expectations ahead of the opening of today's trading session are positive following Friday's intraday bounce. The European stock market indexes have gained 1.2-1.5% so far. Will the sentiment change before cash market opening at 9:30 a.m.? For now, it looks like the market may extend its Friday's bounce. It will probably retrace some more of its Thursday's move down. One thing's for sure, volatility will remain relatively high. There will be no new important economic announcements today. However, investors will wait for more quarterly corporate earnings releases.

The S&P 500 futures contract trades within an intraday uptrend following overnight consolidation, as investors' sentiment remains bullish after Friday's quick reversal off new short-term low. The market retraces some more of its Thursday's sell-off. It trades along the level of 2,650. The nearest important level of support is at 2,630, marked by local lows. The next support level is at 2,580-2,600. On the other hand, resistance level is at around 2,650, and the next level of resistance is at 2,690-2,700. The futures contract trades along its close resistance level of 2,650, as we can see on the 15-minute chart: